Looking for an end to Hollywood's dot-combat

DavidB. Wilkerson

CHICAGO (MarketWatch) -- In the entertainment industry's ongoing strike, getting writers back to work will require the two sides to make peace in cyberspace.

The Writers Guild of America, representing nearly 12,000 writers of television shows and movies, have been in a walkout since Nov. 5, sending late-night network talk programs into reruns and halting production of numerous sitcoms and dramas. They are trying to renew a contract with the Alliance for Motion Picture and Television Producers that expired at the end of October.

Before negotiations broke down last Friday, the two sides had been back at the bargaining table since just after Thanksgiving, trying to resolve a dispute over how much money writers deserve when TV shows and movies are streamed over the Internet, among other issues.

The contentiousness of the talks was illustrated late Thursday when the writers filed charges with the National Labor Relations Board, accusing the producers of bargaining in bad faith. See full story.

With DVD sales slowing, and as consumers spend an increasing amount of time surfing the Web for news, information and entertainment, studios and TV networks are determined to stake out the best possible position to rake in big dollars, anticipating that Internet streaming will explode as a mass medium.

"There's a technological approach to entertainment that's sweeping into Hollywood from Northern California, challenging the old-line companies," said Jonathan Handel, an entertainment lawyer at TroyGould in Los Angeles. "The Yahoos, the Googles, the YouTubes ... they are all much more nimble than these studios that have been around for 70, 80 years. So there's an enormous fear, because the studios have not had much success countering that."

Writers still believe they were cheated out of their fair share of home-video residuals negotiated in the 1980s, and they worry a similar fate awaits them in the Internet age.

Under existing arrangements, writers receive 1.2% of gross revenue from shows streamed on the Web. In the most recent talks, the writers proposed that in the first year of their new contract, they should receive 3% of applicable revenue for every 100,000 hits generated, each quarter, for a TV show streamed over the Internet. In the second year, this percentage would drop to 2.5%.

Michael Winship, a senior Writers Guild of America official, described it to union members this way in a letter last week: "So if you wrote a one-hour episodic drama, you'd get $632.34 for the first 100,000 hits, then an additional $632.64 for the next 100,000 and the next 100,000 and so on -- quarterly, for the first year. After that, it would revert to 2.5% of distributor's gross."

But the producers object to distributor's gross as a formula for writer compensation. They say the compensation should only be based on what they take in once the distributor -- such as an entity like a TV network -- has taken its cut. Based on the latter, the producers say the writers are asking for more compensation than producers actually receive in revenue, and therefore the union's proposal would destroy the model for streaming before it even gets off the ground.

Both sides are also haggling over similar concerns dealing with shows downloaded from online stores like iTunes run by Apple Inc.
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or other channels, but different terms apply.

The producers are holding fast to the offer of a $250 flat fee for unlimited streaming of a TV program for one full year, following a six-week period in which the producers would be entitled to "free use" of the material. Should the producers decide that that streaming is for "promotional use," the writers of the show would receive nothing.

In contrast, writers make around $20,000 for a single TV program rerun on television.

The notion that new media would be destroyed by the writers' demands is "ridiculous," said Handel, a former associate counsel at the Writers Guild.

"A number of the residual formulas in the [current] Writers Guild agreement are based on distributor's gross, not on the gross that the producer actually receives," he noted. "There are ways for the producers to deal with that, such as having an agreement that requires the distributor to make the payment."

Handel also commented that regardless of the producers' objections, they shouldn't have broken off contract talks. "If there's a discussion to be had, let them have a discussion."

However, other entertainment lawyers say the producers do have a point. "In start-up situations where technology is new, there often isn't that much revenue," said Charles Kaplan, a partner at Lowenstein Sandler in New York. "So, for the writers to say, well, we want a part of that stream of revenues, when that stream is small or non-existent, can prevent the enterprise from being economically feasible."

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